Animesh Kumar, Young Leader - IndiaGlocal
Animesh Kumar is a full time post graduate candidate at Indian Institute of Management, Ranchi. This article was submitted as part of his selection process as an IndiaGlocal - Young Leader. The views and opinion in the article are solely of the author.
India’s ambitious target of becoming USD 5 trillion (Nominal GDP) economy has been vouched for in government’s budget and speeches of our government heads. Deviating from the Nehruvian economic model, the government has entrepreneurial spirit to bring growth. Government has reinforced policies like Aatmanirbhar Bharat, Skill India, Make in India and many other to push the Indian economy on the growth path. Central Bank has also cut the repo rate many times subsequently over the past two years, which currently stands at lowest ever rate of 4%. Through these measures, both government & RBI envisages to increase cash flow in the market, increasing the consumption giving boost to the industrial output.
Indian economy witnessed a decline of 1.1% in GDP growth rate in 2019, standing at USD 2.9 trillion. It aims to achieve to grow to USD 5 trillion, with consistent double-digit growth rate in the coming years. Deeper look into the calculations behind the target economy puts the GDP growth rate to be at 11.5% for the next five years. India has seen highest GDP (nominal) growth of 11.4% (in 2007-08) since Independence with only two incidences when GDP was recorded to be in double digits (other in 1988-89). China has seen consistent double-digit growth for two times in the past 50 years. The only possible way India achieves this target is when inflation of 4% couples with 7.5% growth rate annually. Putting the pressure on inflation, there will be consequent depreciation in the rupee as compared to US dollar, resulting in weakening local market demand.
Covid-19 has brought fresh turmoil in the economy, with the GDP growth rate declining to -4.9% as projected by IMF. There has been decline in credit growth rate seen for industries and agri-sector. Despite governments strides to dampen the impact of Covid-19 with packages aimed at promoting MSME’s and easing credit for industries at large, credit growth to industry grew by merely 2.2 per cent in June 2020 as compared with 6.4 per cent growth in June 2019. According to ICRA estimates, the year-on-year (y-o-y) growth in bank credit is expected to decelerate sharply to 6.5-7.0% during FY’2020 from 13.3% during FY2019.
Indian economy will have to bring in regulatory and structural reforms in order to be in the race for its target. Economic Survey released in January 2020, posits the exports of network products to form a quarter of value required for the India’s GDP growth by 2025. Putting its initiative for “Assemble in India for the World’ against China’s “Factory for the world,” the Indian economy would be able to add jobs to the market, besides raising export market share to 3.5% globally. It is important for the Indian economy to focus on exporting items in which it is already exporting. The government has focused on increasing exports and not on curbing imports from the largest importer country China. Banning of apps on grounds of privacy and data localisation would need to be maneuvered tactfully, as India imports essential items for many of its industries which only China manufactures. Twenty-first century can belong to India only when it doesn’t maneuver its budget allocations increasingly on defense. It points to inclusive growth for south-east Asian nations. India shall play its growth card correctly, given that West super power, US is in direct conflict with China and would go long way in preparing a strong base in the region. However, Indian government has rightly taken cue from the developments in Iran & Afghanistan after US entry, and is cautious in putting its stance globally. India has rightly not depended on any nations backing when it went ahead with negotiations on Galwan issue.
Simultaneously, regulations related to privatization, labor laws, GST registration & FDI changes among other measures taken, has paved the way for investments in Indian industries. Indian MSME has somewhat dampened the effect of Covid-19 on the Indian economy. Digital transactions have increased, local delivery systems have evolved into new market, small entrepreneurs are coming up, innovation has taken forefront in India, after Mangalyaan, India is on its journey to provide Covid-19 vaccine – Covaxin.
Despite futuristic targets, certain social issues related to dowry, unemployment, income inequality, child marriage, child labor, atrocities against women, acid attack, murder, corruption and many more need to addressed. India needs to not only develop Smart cities for this futuristic goal to be achieved, but also incorporate social responsibility as a part of learning path, which the new National Education Policy could have included. USD 5 trillion economy would be attainable only if the society across nation spends more. The airports built under UDAN scheme would only be profitable when demands are present in the society, which would depend on educating the society.